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What is the Difference Between an "Arbitration" Clause and a "Mediation" Clause in a Contract?

Q:  What is the Difference Between an "Arbitration" Clause and a "Mediation" Clause in a Contract?

Arbitration and mediation are two types of alternative dispute resolution that may be provided for in a contract to resolve disputes arising out of the contract.  Although these two terms are often interchanged, they have very distinct differences and must not be confused. 

An arbitration clause states that all disputes arising out of the contract will be resolved by arbitration rather than state or federal court litigation. With growing court congestion, prolonged discovery, and motion practice driving up the cost of litigation, arbitration has become an increasingly popular form of alternative dispute resolution. 

The arbitration process allows an independent arbitrator, or panel of three arbitrators, to settle a dispute rather than a Judge or a jury in a state or federal court lawsuit.  In arbitration, the parties are each allowed to present their case, including offering evidence and witness testimony, to the arbitrator.   The arbitrator then makes a decision adjudicating the legal claims between the parties.   The arbitrator's decision is final and binding upon the parties, and the parties relinquish their right to appeal the arbitrator's decision to a court.  Further, the decision of the arbitrator is valid and enforceable to the same extent as a judgment issued by a court of law.  

Absent an agreement to do so, parties to a contract are not required to submit disputes to arbitration.  The contract must contain a specific and detailed arbitration clause, unless the parties later agree to submit their dispute to arbitration prior to instituting legal proceedings. 

Mediation is another distinct type of alternative dispute resolution that may be provided for in a contract.  The parties can agree to submit any contract dispute to mediation prior to initiating legal proceedings.  However, unlike arbitration, the goal of mediation is simply to facilitate an amicable agreement between the parties.  The parties employ a neutral mediator to assist the parties in attempting to settle their differences informally.  Mediation is a consensual process, and the mediator does not have the authority to render a decision determining the legal rights between the parties.  If the parties are unable to reach a settlement in mediation, the dispute would need to then be presented to a court of law or to an arbitrator for final determination.